On Thursday, Stifel took a positive stance on Now Inc (NYSE: DNOW), raising the industrial products and equipment distributor's price target to $18 from $16, while reiterating a Buy rating on the stock. The firm's optimism is rooted in Now Inc's strategic capital deployment and the recent acquisition of Whitco, which is expected to enhance the company's cash flow and gross margins.
Stifel's analysis follows recent investor meetings where Now Inc's CEO David Cherechinsky and VP IR & Digital Strategy Brad Wise discussed the company's financial strategy and growth prospects. The company, which boasts net cash on its balance sheet and a structurally improved cash flow profile, plans to focus on acquisitions targeting higher gross margin businesses to fuel growth.
The acquisition of Whitco, a regional competitor, was completed in March, with financial details to be disclosed in the first quarter 2024 10-Q report. Now Inc intends to manage Whitco separately from its core distribution business while seeking revenue synergies between the two entities.
The company's acquisition strategy is also geared toward expanding its pump business and diversifying into energy transition, carbon capture, utilization and storage (CCUS), and midstream markets.
Now Inc's management anticipates organic revenue growth throughout 2024, primarily driven by CCUS projects which brought in approximately $30 million in 2023.
With the Inflation Reduction Act offering significant incentives for CCUS projects, Now Inc's management is confident that these initiatives will be highly profitable for their customers and expects CCUS-related revenue could potentially double in 2024.
Despite the anticipation of flat markets in upstream distribution for the year, Now Inc aims to outperform the market by capturing additional market share through superior customer service. This strategy is part of the company's broader vision to tap into sustainability-focused markets, which could be key growth drivers over the next five to ten years.
InvestingPro Insights
Following Stifel's positive outlook on Now Inc (NYSE: DNOW), current metrics from InvestingPro reinforce the company's strong financial position. With a market capitalization of approximately $1.62 billion and a notably low price-to-earnings (P/E) ratio of 6.67, Now Inc is trading at an attractive earnings multiple, which may interest value-focused investors. The company's P/E ratio has remained consistent in the last twelve months as of Q4 2023, sitting at 6.48. This financial stability is complemented by a robust return on assets of 17.41%, highlighting efficient management of its asset base.
InvestingPro Tips indicate that Now Inc holds more cash than debt, which is a testament to its solid balance sheet, and liquid assets exceed short-term obligations, providing financial flexibility. This aligns with the company's strategic capital deployment mentioned by Stifel. Additionally, the stock's recent performance has been strong, with a 33.07% price total return over the last three months, and it is trading near its 52-week high, at 99.8% of the peak price.
For investors seeking a deeper dive into Now Inc's potential, there are 10 additional InvestingPro Tips available, offering comprehensive insights into the company's financial health and market position. To access these insights, consider subscribing to InvestingPro using the coupon code PRONEWS24 to get an extra 10% off a yearly or biyearly Pro and Pro+ subscription.
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